Business Interruption Insurance | What it Covers, Cost, & More
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Business Interruption Insurance: Protecting Your Company from the Unexpected

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Your business is your pride and joy. And if you’re like most owners, you’ll do whatever it takes to protect it at all costs. But, you can’t always protect your company from unexpected events, like natural disasters. To keep your business safe and help it stay afloat if disaster strikes, consider investing in business interruption insurance. Read on to learn about interruption insurance, including whether or not it covers coronavirus-related claims.

What is business interruption insurance?

Business interruption insurance, also known as business income insurance, is coverage that replaces business income lost due to a disaster. The insurance can help a business continue to pay its bills while it is temporarily closed because of a disaster.

Typically, business interruption insurance is a part of a business insurance policy. In most cases, it is not a standalone insurance policy business owners can purchase.

Keep in mind that the definition of “disaster” may vary depending on your business’s insurer. Business interruption insurance may cover the following types of disasters:

  • Fire
  • Wind
  • Storm
  • Theft
  • Damage to property (e.g., tree falls)
  • Other natural disasters

definition of business interruption insurance for small business owners

Who can receive interruption insurance?

Any business owner can get business interruption insurance through their insurance company. Many business owners get interruption insurance if they have a physical business location that needs protected from covered disasters (e.g., property damage).

Small businesses may get a policy that includes things like property, liability, and business interruption coverage.

Home-based businesses and self-employed individuals may also be able to receive business interruption coverage through a homeowners insurance policy.

What does it cover?

Business interruption insurance covers a number of expenses that a company may not be able to pay due to a disaster, including:

  • Lost revenue
  • Fixed costs (e.g., operating expenses)
  • Relocation costs
  • Commission and training costs
  • Employee wages
  • Taxes
  • Loan payments
  • Mortgage, rent, and lease payments

Generally, business interruption insurance doesn’t cover utilities, short interruptions (e.g., power outage), or partial interruptions (e.g., scaled-back operations).

Your business interruption insurance likely also has a restoration period. A restoration period is the length of time that your policy helps pay for lost income and expenses while you restore your business. Some plans cover up to 12 months of losses while others can cover up to 18 or 24 months.

Business interruption insurance coverage varies. For example, some insurance companies may cover relocation expenses while others might not. Check with your insurer to see what is covered under your business interruption insurance policy.

How much does it cost?

The cost for business interruption coverage depends on your insurance agency, industry, number of employees, and the amount of coverage you need.

Rates may also vary depending on your location and amount of risk. If your business is located in an area with an increased risk of natural disasters (e.g., hurricanes), you may need to pay more than businesses in lower-risk areas.

Before you invest in a business interruption policy, determine a dollar amount for the coverage limit by looking at things like profits for 12 – 24 months and related expenses (e.g., payroll and relocation costs). That way, you can be prepared when you discuss insurance options with your provider.

How do you get business interruption insurance?

To get business interruption insurance, talk to your insurance provider about your options. If you don’t already have interruption insurance, your business’s insurance provider may be able to add it on to your plan.

Do your homework before committing to a provider or plan. Find out what each potential insurance provider covers for your business and compare pricing.

Do I need a business interruption policy?

You never know when disaster is going to strike your business. So, it’s always better to be safe than sorry. If you’re not sure if your business needs interruption insurance, consider the pros and cons of getting insurance and think about the following questions:

  • Where is my business located?
  • Am I in a high-risk or low-risk area?
  • Have other businesses near me experienced a disaster?
  • Will getting insurance be better for my business in the long-run?

Business interruption insurance and COVID-19

So, the question and answer you’ve all been waiting for: Does business interruption insurance cover coronavirus claims and temporary business closure due to pandemics? The answer … probably not.

In most cases, business interruption insurance only covers lost income and expenses for property damage-related claims due to a disaster (e.g., hurricane). Most business interruptions policies likely will not cover lost profits from the coronavirus or any future pandemics.

Standard interruption insurance doesn’t cover claims related to incidents like the COVID-19 pandemic. However, it all depends on the insurer and the contract. Most policies specifically exclude losses from pandemics because they impact all companies simultaneously. Many insurers began adding virus and pandemic exclusions to their business interruption insurance policies after the SARS outbreak in 2003.

The language of the contract can play a huge role in whether or not things like the coronavirus are covered. Policies that don’t specifically exclude viruses may be able to provide some type of coverage for businesses that had to temporarily close down due to the coronavirus crisis. Check with your insurance provider to find out whether you can claim coronavirus-related losses under your policy.

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This is not intended as legal advice; for more information, please click here.